The February Stats SA building statistics continue to point towards an extremely weak picture for the residential building sector, according to FNB Home Loans property strategist Jon Loos.

He points to the fact that for the 3 months to February 2010, the square metreage of residential buildings completed declined by -35.3% year-on-year, slightly worse than the -31.9% for the 3 months to January.

However, while completions data shows no better than a broad "treading of water" in the extreme rate of decline, building plans passed numbers (a better sign of things to come), indicate that activity may be set to slowly start coming out of its slump, Loos believes.

Year-on-year for the 3 months to February, square metres of residential plans passed recorded a decline of -24%. While this is still a very weak number, it is a substantially lesser rate of decline than for that of residential square metres completed, and also a significantly lower rate of decline than the -49% decline recorded for the 3 months to August 2009, just 6 months prior. Loos says.

By property category, the rate of decline in square metres of residential buildings completed is worst in the "flats and townhouses" segment, recording year-on-year decline of -51.6% for the 3 months to February year-on-year, while the least rate of decline was found in the "houses less than 80 square metres" category, to the tune of -4.3%.

The houses greater than 80 square metres in size showed a rate of decline of -33.1% in square metres completed.

"This is more-or-less as expected, as we are of the belief that the boom years saw the greatest oversupplies of new property being developed in the area of flats and townhouses, oversupplies some of which haven't yet been eliminated," notes Loos.

On the commercial property side, the slump remains in full swing. Square metreage of retail space completed jumped by +37.2% year-on-year for the 3 months to February, but this was more a base effect after a massive declined in the corresponding 3 months' completions a year prior, and is believed to be a temporary spike.

Examining the past 12 months' total retail space completed, the decline on the previous 12 months was -24%, which gives one a better perspective of this segment's weakness, according to Loos.

The oversupplied office segment, whose vacancy rates have been steadily rising, saw square metres of completions declining by -21.1% year-on-year for the 3 months to February, while industrial space completed declined by -12.3%.

Looking ahead, Loos says: "We are of the belief that one will only see noticeable improvement in building completions of residential property during the 2nd half of the year, and that this will be a moderate recovery at best.

Despite over a year's worth of residential demand increase, as a result or interest rate cuts last year, oversupplies have not fully been absorbed, and stressed sellers of existing properties are still abundant.

"On the commercial property side, we have not yet seen a turn in the rising vacancy rate trend, either in industrial property or office space.

This is arguably why building plans passed numbers in the commercial segment still look worse than completions (unlike residential where plans passed rates of decline have diminished somewhat), running at -53.7% year-on-year for office space, -31.1% for retail space, and -25.8% in the industrial space segment.

"The commercial segment would thus seem to lag residential, and the turn for the
better may be delayed until 2011."

Source: I-Net Bridge